Member Brokers
Starting October 1st this year, lenders must conduct a more thorough evaluation before extending loans to individuals with a portfolio of rental properties. The assessment now involves affordability testing, but the Prudential Regulation Authority (PRA) guidelines are somewhat ambiguous, urging lenders to adopt a “proportionate approach” based on their understanding of the borrower, their property portfolio, and additional income sources.
In the evolving landscape of property finance, the involvement of brokers becomes crucial. Liz Syms sheds light on the evolving dynamics and emphasises the pivotal role brokers can play in navigating the complexities introduced by these regulatory changes. As the lending sector adapts, the synergy between brokers and lenders gains significance, ensuring a more informed and tailored approach to supporting portfolio landlords.
Providing a more comprehensive picture, the Prudential Regulation Authority (PRA) has outlined additional information necessary for assessment. This includes details such as the borrower’s track record in the buy-to-let market, a thorough overview of their property portfolio, and existing mortgage commitments. The borrower’s financial standing, encompassing assets, liabilities, and potential tax obligations, is also a key consideration.
Moreover, the PRA emphasises evaluating the viability of new lending within the context of the borrower’s existing buy-to-let portfolio. This involves scrutinising historical and anticipated future cash flows associated with all properties the borrower owns. Essentially, this signifies a shift toward a more holistic risk assessment approach.
Given these requirements, every portfolio landlord is now compelled to formulate a comprehensive business plan for their properties. This plan should encompass geographic concentrations, cash flow projections, associated costs, and potential risks inherent in the portfolio. Additionally, lenders must exercise due diligence, particularly when assessing properties held within limited companies, as these are factored into calculating the four properties defining a portfolio landlord. This regulatory evolution marks a significant step towards fostering a more thorough and nuanced understanding of borrowers’ financial positions in the buy-to-let market.
Member Brokers | Slow Start
Lenders have been somewhat sluggish in outlining specific requirements, a predicament exacerbated by the brevity of the 11-page PRA statement. The section dedicated to portfolio landlords spans just one page, while the discussion on SMEs, encompassing limited company buy-to-let, comprises a mere four paragraphs.
The brevity of the guidelines has left lenders grappling with the need to decipher and meet PRA expectations, allowing ample room for interpretation. A select few, such as Paragon, Santander, Aldermore, TMW, Coventry, and Accord, have shed light on their respective requirements, revealing a notable disparity among them.
The concept of a “proportionate approach” adds an additional layer of ambiguity. Predictably, some lenders may opt to restrict their focus to borrowers with three properties or fewer, a decision that simplifies their underwriting processes. As the industry navigates this interpretative landscape, delays in implementing standardised approaches may persist.
Member Brokers | Empowering for Effective Client Support
Brokers wield significant influence in assisting clients with their financial endeavours. To enhance their efficacy, it is imperative for member brokers to focus on showcasing an updated and comprehensive portfolio. Utilising tools such as Zoopla and Mouseprice and meticulous cross-referencing of bank statements ensures current values, rental incomes, and mortgages.
Understanding the client’s overarching strategy is another pivotal aspect. Member brokers need to delve into the client’s motives—whether it’s income generation, retirement planning, or capital growth—enabling them to aid in formulating and presenting a robust business plan.
Moreover, thoroughly examining the client’s complete asset portfolio is essential. Member brokers should consolidate this information strategically, presenting lenders with compelling reasons to approve the client’s loan application. This proactive approach minimises gaps in information and mitigates potential reasons for lenders to reject the proposal. In essence, member brokers play a pivotal role in shaping a favourable narrative for their clients in the financial landscape.